Montana State University professors are taking the next step in research that could make it possible to produce biofuel from wood chips using a fungus discovered in South America.

This fall, the university received a four-year, $2 million grant from the National Science Foundation. The money will allow faculty members at MSU and collaborators at Yale University to conduct a detailed study of the fungus Gliocladium roseumwhich naturally produces gases that contain many of the same hydrocarbon compounds found in petroleum-based diesel fuel.

"This is a really exciting project," said Brent Peyton, professor in the Department of Chemical and Biological Engineering and the grant's principal investigator. "It's relevant to our national needs, and it's going to train engineering students at the cutting edge of bio-technology."

A team led by plant sciences professor Gary Strobel discovered G. roseum in the Patagonia region of Chile in 2002. Strobel and other researchers announced the fungus's existence in a paper published last year in the journal Microbiology.

Peyton, Strobel and biological engineering professor Ross Carlson will coordinate their research with Yale professors Mitchell Smooke and Scott Strobel -- Gary Strobel's son -- who are mapping the fungus's genes to learn just how it produces its hydrocarbon-rich vapors.

MSU will use that genetic information to experiment with the fungus's growing conditions, attempting to optimize the growth of G. roseum and get it to produce hydrocarbons as fast as possible, Peyton said.

"If it takes a ton of wood chips to make a gallon of fuel, that's one thing. If you can make a half ton of fuel from a ton of chips, that's another thing...that's part of what we are trying to find out," he said.

G. roseum is an endophyte, a type of organism that lives between the cells of another organism -- in this case, a maple-like ulmo tree. Endophytes rarely show any outward sign of their presence and cause few diseases. In fact, some endophytes help their host organisms by fighting off bacteria and other fungi. Strobel suspects G. roseum's hydrocarbon gases serve just such a purpose.

These antibiotic properties can be put to use in ways that benefit humans -- such as the endophyte he discovered that naturally produces the cancer drug taxol. It's that possibility of finding new antibiotics and medicines that has kept Strobel searching the world's rain forests and jungles for 20 years.

"Maybe these microbes no one has seen before offer some solutions to some of our problems," he said.

Plenty of experiments and computer modeling will be needed for the kind of optimization that would make G. roseum into a viable fuel source, Carlson said.

"Cells tend to be complex, with lots of moving parts," he said. "We want to understand how the whole organism works as a system."

Carlson will use the genetic analysis of G. roseum to create a computer model of the fungus's metabolism. Using that model, he'll predict what growth conditions will cause the fungus to produce the most hydrocarbons. His predictions will be tested in the laboratory, and the lab results will be analyzed at Yale.

The ultimate goal, Peyton said, is to determine whether the production of G. roseum could be scaled up enough to produce large volumes of biofuel at an affordable price -- an outcome that he said is probably still at least a decade away.

"I think this fungus has a lot of potential, but it's such a new discovery that we don't have enough information to even do back-of-the-envelope estimates," he said. "That's the work we have to do now."

Strobel hopes that G. roseum will be another indication that the world's forests and jungles are full of surprises worth searching for, and preserving.

"I hope that, as a result of this, people in other countries will begin to realize that their forest has much more value than simply the trees that live there," he said.

This grant was awarded through the NSF's Office of Emerging Frontiers in Research and Innovation. Based on preliminary proposals submitted to the NSF, 81 researchers were initially competing for the grants. Of those, only 8 were selected, including MSU. The money for this award comes from the American Recovery and Reinvestment Act of 2009.